Glenn Milne | February 09, 2009
FROM where the Government sits, the trouble with independents, of course, is that they're independent. Which means they read more widely than, say, The Monthly magazine and prominent treatises consigning the past 30 years of global economic expansion to the dustbin of history on the dictate of the next Australian electoral cycle.
Which is also why Kevin Rudd and Wayne Swan ought to read just as widely. And going through recent back issues of The New Yorker would be a good starting point if they want to maximise their chances of getting their fiscal stimulus package through parliament this week.
More of The New Yorker later. First to Nick Xenophon and some Senate mathematics. To get through the upper house anything that the Coalition opposes, the Government needs the votes of all five Greens, Family First's Steve Fielding and the genuinely independent Xenophon.
A tied vote is no good to Labor because under Senate rules such a vote is deemed to be a negative. It needs all of the above for a simple majority. In political terms it's tough territory. Rudd and Swan are about to find out just how tough as they attempt to smite the oncoming recession with $42 billion of government spending, the Senate willing.
And with Malcolm Turnbull having made up his mind to try to block the stimulus package holus-bolus, "the Senate willing" now means the Greens, Fielding and Xenophon.
The Greens, miraculously enough, are at present the least belligerent of this Senate triumvirate, with Bob Brown backing the judgment of Treasury head Ken Henry that the $42 billion spend is justified by the circumstances we face. Brown has declared his party will not take a sledgehammer to the package. Even the Government is somewhat baffled by his apparent willingness to compromise.
Fielding is demanding $4 billion be redeployed to help local communities and the unemployed. Not even Brown is prepared to countenance that scale of surgery on the package.
Labor is waiting to see where Fielding finally comes down, a measure of how it privately regards him: a human headline.
Xenophon, however, is in a different category. Labor does take him seriously, if only - as one Labor wit pointed out yesterday - in comparison with Fielding.
If that's the case then the Government ought to concern itself with what's on Xenophon's mind.
So far he's playing his cards close to his chest. But asked privately last week what was his shopping list - in other words, what was the price of his support for the stimulus package - Xenophon replied: "I haven't even decided to go shopping yet." Which can only mean he has serious threshold concerns about what the Government is proposing.
Time then to reintroduce The New Yorker. Behind the scenes Xenophon has been much taken by a piece in the January 26 edition by the writer of the magazine's financial page and author of books on economic behaviouralism, James Surowiecki.
Surowiecki's starting point is Barack Obama's stimulus package and his plan to include more than $US100 billion ($148 billion) in individual tax rebates. Surowiecki notes the decision earned Obama criticism from both ends of politics. Democrats think that at $US40 a month, it's too small an amount to make a difference. Republicans say because the tax rebate is a one-off event rather than a permanent reduction in tax rates, it will have only a negligible effect. Sceptics on both sides worry that most people will save the rebate rather than spend it.
Sound familiar? This is precisely the defining debate Rudd and Turnbull are having over Rudd's stimulus package. Turnbull argues that Labor's $950 cash bonus - like all cash windfalls - is likely to be saved rather than spent. And therefore permanent tax cuts are the better stimulatory policy option.
Leaving aside the amounts involved, one of the reasons Surowiecki backs Obama's rebate plan is because it will be handed out over time "instead of in one lump sum, and that it will add a small but steady amount to Americans' take-home pay".
According to Surowiecki: "A compelling explanation for why rebates haven't worked very well (in the past) is that they have been handed out as lump sums.
"You might think that handing people a big chunk of change is a perfect way to get them to spend it.
"But it isn't, because people don't treat all windfalls as found money. Instead, in the words of the behavioural economist Richard Thaler, people put different windfalls in different 'mental accounts', which in turn influences what they do with the money.
"Where the money comes from can have a big impact on whether people spend it or save it: casino winnings are more likely to be spent than, say, money from an inheritance. The framing of a windfall is important, too: a recent study by the business professors Nicholas Epley and Ayelet Gneezy showed that when a tax rebate was presented as a bonus it was more likely to be spent than when it was presented as a refund.
"And the size of the windfall matters a lot: the bigger the windfall, the more likely it is to be saved. One fascinating study of Israelis who received reparations from Germany found that those who received the biggest payments spent very little of the money, while those who received small payments spent it all."
In other words, Surowiecki is broadly coming down on the Turnbull side of the permanent tax cuts v one-off windfall payments debate going on here in Australia. Which as of this moment also means that's the side of the argument to which Xenophon isleaning.
And that in turn means that during discussions this week with Xenophon, Rudd and Swan may well be betting the house when it comes to their stimulus package, unless Xenophon is prepared to be bought for, say, more infrastructure spending on the Murray-Darling in his home state of South Australia, something he's talking about as well.
The sting in the tail for Rudd in the Surowiecki piece is his references: "One explanation for why rebates don't have a bigger impact is they don't affect what Milton Friedman called people's permanent income," he writes.
"Friedman argued that people's spending is determined by what they think their incomes will be over time; they change their spending habits only if they think they're going to be permanently wealthier or poorer."
Some one should tell Xenophon, before he gets down to serious negotiations with Rudd this week ahead of Thursday's Senate vote, that's the same Friedman a certain prominent essayist in the latest edition of The Monthly would willingly identify as one of the bete noirs of neo-liberalism.